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TMI Blog2014 (8) TMI 843X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer on 21.03.2005 on the ground that the appeal is infructuous. 2. Facts in brief: The assessee is employed with M/s. Adobe Systems (India) Pvt. Ltd. The parent company M/s. Adobe Systems Inc has granted ESOP (Employees Stock Option Plan) to the assessee per terms of the employment. The assessee had sold the stock options in question on various dates. The details are given below:- "Sl. No Date of Grant No. of Shares Date of sale capital gain (i) 01.10.1998 40 07.04.2000 178886 (ii) 28.08.1999 66 21.09.2000 469370 (iii) 01.10.1998 100 03.10.2000 675598 (iv) 08.11.1999 255 08.12.2000 403233 (v) 08.11.1999 150 08.12.2000 243378 Total 1970467" 3. The assessee filed his return of income for the A.Y. 2001-02 on 27.07.2001 showing taxable income of Rs. 24,62,455/- which included long term capital gain of Rs. 19,70,467/- on the alleged sale of the said shares, on which he paid at the rate of 10%. The Assessing Officer processed the return under Section 143(1) on 30.08.2002, wherein he treated the long term capital gain declared by the assessee at Rs. 19,70,470/-, as short term capital gain, on the ground that, the said sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... term capital gain rather than being the short term capital gain. 2. (i) The Assessing Officer had erred in issuing notice under section 148 of the Income Tax Act on 17.1.2006 without appreciating that his predecessor had held after appreciating the detailed submissions of the appellant to the effect that the capital gain on this account represented the long term capital gain liable to be taxed at the rate of 20% under section 112 of the Act vide his order dated 28.10.2002 under section 154 of the Act. (ii) The Assessing Officer had erred in issuing the notice under section 148 of the Act on a mere change of opinion and as such the said notice was illegal, null and void. (iii) The Assessing Officer had erred in issuing the notice under section 148 of the Act without there being any prima facie material in support thereof. (iv) The Assessing Officer had erred in issuing notice under section 148 of the Act contrary to the settled position in law in the light of a number of High Court and Supreme Court judgments. (v) The CIT (A) had erred without appreciating the true position in uphold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d erred in not appreciating that the shares had been allotted from 8.11.99 to 17.12.2003 and had been sold from 22.4.2004 to 23.7.2005 after more than one year in respect of each transaction and as such there were long term capital gains. (ii) The lower authorities had erred in not appreciating that the appellant had computed the long term capital gain after indexing the cost of the said shares in accordance with the provisions of the second proviso of section 48 of the Income Tax Act. 3. (i) The lower authorities had erred in not appreciating that the appellant had made investment of Rs. 14 lakhs in specified Bonds under section 54-EC of the Act to avail the exemption on this account in respect of the long term capital gains. (ii) The lower authorities had erred in not appreciating that the investment in the purchase of residential house had been made out of the long term capital gains and as such the exemption of Rs. 5,30,841 was admissible under section 54F of the Act. (iii) The lower authorities had erred in not appreciating the true position and had further erred in not allowing exemptions of Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the judgment of Ahmedabad Bench. (iii) The CIT (A) had erred in not appreciating that the facts of the appellant were identical to the facts in the judgments of Hyderabad, Bombay and Ahmedabad Benches and as such the judgment of Delhi Bench in the case of Ajay Pandey and the judgment of Bangalore Bench in the case of Giridhar Krishna M. Vs ACIT (2008) 307 ITR (AT) 68 were distinguishable." 6. In ITA No. 5376/Del/2010 the assessee challenged the order of the ld. CIT(Appeals) wherein he dismissed an appeal filed against an order passed by the Assessing Officer under Section 154, withdrawing partly the deduction under Section 54F. The ld. CIT(A), Ghaziabad had dismissed the appeal on the ground that, the order under Section 154 passed by the A.O. has got merged with the later order under Section 147 dated 26.12.2008 and hence the appeal is infructuous. Aggrieved the assessee is in appeal on the following grounds:- "1. The lower authorities had erred in not appreciating the facts and circumstances of the case or the submissions of the appellant and had further erred in passing the orders, which were bad in law and on facts. &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the stock option grants were capital assets and consequently capital gain therefrom after the period of four years were to be assessed as long term capital gains. (ii) The CIT (A) had erred in not appreciating that Hyderabad Bench had relied on earlier two judgments of Bombay Bench and the judgment of Ahmedabad Bench. (iii) The CIT (A) had erred in not appreciating that the facts of the appellant were identical to the facts in the judgments of Hyderabad, Bombay and Ahmedabad Benches and as such the judgment of Delhi Bench in the case of Ajay Pandey and the judgment of Bangalore Bench in the case of Giridhar Krishna M. Vs ACIT (2008) 307 ITR (AT) 68 were distinguishable." 7. Ld. counsel for the assessee, Mr. Ashwani Taneja represented the assessee. For the A.Y.2001-02 he challenged the validity of the reopening on the ground that it was made on the basis of mere change of opinion which is not permissible in law and also on the fact that the Assessing Officer has passed his order on 25.07.2006 without disposing the objection filed by the assessee against the reasons recorded for reopening, which act is against the procedure laid dow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer as well as the CIT(A). On the issue of reopening he submitted as under: (a) no opinion is formed while processing return of income under Section 143(1)(a) of the Act. Material has come into the possession of AO based on which he came to a conclusion that income has escaped amount. (b) Order passed under Section 154 is only to correct mistake apparent on record in the intimation under Section 143(1)(a) and subsequent reopening of the assessment does render the order passed under Section 154 as infructuous. (c) The information received is that the assessee had received ESOP and that he exercised the options only on the date of sale of the shares. It was submitted that it had come to the knowledge of the AO that the shares were never allotted to the assessee and only rights were sold. 13. On merits, he submitted that though the assessee was granted the ESOP on a particular date, he choose to exercise the option only on the date of sale and hence the period on holding of shares if any is less than one day and hence the gain in question is a short term capital gain. He pointed out that the period of holding the right in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T. Act 1961] which requires initiation of proceedings u/s 147 for reassessment." The notice u/s 143(2), 142(1) and questionnaire to provide the details are also enclosed herewith for necessary compliance for the purpose of which the date of bearing has been fixed on 08.03.2006. (C.B. Singh) Assistant Commissioner of Income Tax, Circle, Noida" 16. A perusal of the reasons recorded demonstrate that the Assessing Officer, during the course of assessment proceedings, in the case of other employees of M/s Adobe System Pvt. Ltd. gathered information that the shares of the parent company M/s Adobe System Inc., USA are under cash less exercise option scheme and that under this scheme, the rights in the form of ESOP's is purchased and sold simultaneously as the broker deducts the purchase cost of ESOP, out of sale proceed and remits it to the present company/Trust and only the balance or difference amount is given to the employees. In other words, it has come to the knowledge of the AO, during the course of assessment proceeding of other employees of Abode Systems India Pvt. Ltd., that the assessee rights in ES ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id down by the Hon'ble Supreme Court. In the case on hand such a remand will not serve any purpose as the AO has dealt with all the objection in the assessment order itself and this has been adjudicated in appeal by the ld. CIT(A). Hence as setting aside the matter would be an empty formality we do not do so. We have dealt with all the objections on merits. 19. Both parties relied upon on numbers of case in support of contention. The case laws relied upon by the ld. A.R. are for the proposition that, in the absence of fresh material, reopening is bad in law and also for the proposition that no reopening of assessments can be made on the change of opinion. As we have held that there was fresh material and as we have hold that there is no change in opinion we held that these decisions are distinguishable of fact suffice to say that we have gone through all the decision cited and applied the proposition laid down therein to the facts of the case wherever necessary. 20. In the result, we dismiss the ground of the assessee on reopening for the A.Y. 2001-02. 21. Coming to the merits of the case, the Assessing Officer is an order passed under Section 143 has held as follows:- &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56 243378 TOTAL GAIN 1970467 22. These facts could not be controverted before us by the assessee. 23. A perusal of the above demonstrates that, on the date of grant the assessee has acquired certain rights i.e. the right to purchase shares in Adobe System Inc., at a particular rate by exercising the option. This right to acquire shares is a capital asset. The date of acquisition of the right is the date of grant. The assessee in this case has exercised the said option to purchase the shares only on the date on which he choose to sell the shares. Thus, what was acquired by the assessee on the date of grant was a right, which was held by him until he exercised his option to purchase share. The period of holding of the capital amount would be the period of holding of the ESOP right, which is a capital assets, is from the date of grant to the date of exercising the option. The fact as to whether the capital gain in question is a short term or long term capital gain or not has to be decided based on the period of holding of this right. If the period of holding is more than 36 months then it is a long term capital gain. The right in question is not a share held by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out the relevant facts. It has not been dealt on that acquisition of valuable rights in a property amounts to a capital asset. In case of Jaswinder Singh (supra), the shares were of the same company, whereas in this case there are group companies held through trustee and there were certain RBI guidelines about non payment of price of shares and the option being exercised by assessee on the date of sale of shares. There was no trustee whereas in assessee's case there was a fixed price of allotment of rights to fixed quantity of shares and the indistinctive shares were held by a trust on behalf of assessee. Non-allotment of distinctive number of shares by trust cannot be detrimental to the proposition that assessee's valuable right of claiming shares was held in trust and stood sold by Pepsico. Therefore, there was a definite, valuable and transferable right which can be termed as a capital asset in favour of the assessee. 7.1. In our view, the assessee's claim of taxability of gains on the transfer of such rights under the head 'long term capital gains' is justified and deserv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 hereby dismissed. 26. Coming to the ITA No. 5376/Del/2010 for A.Y. 2004-05 is on the issue of rectification order passed Section 154 by the A.O. on 21.03.2005 for withdrawal of excess exemption granted under section 54F of the Act. Notices under Section 154 were issued to the assessee. The assessee did not comply with the notices issued by the Assessing Officer under Section 154 of the Act. An ex-parte order was passed on 21.03.2005. This could be finally served on the assessee on 29.09.2006. The assessee in the meanwhile filed a revised R.O.I. on 03.05.2005. 27. After hearing rival contention, we agree with the contention of the assessee that the appeal against the order passed under Section 147 and the appeal against the order passed under Section 154 are separate proceedings and there is no question of merger. There should be disposed off separately. 28. As the A.O. has passed an ex-parte order, we deem it fit to set aside the issue to the A.O. for fresh adjudication in accordance with law after giving an opportunity to the assessee. 29. In the result, this appeal is allowed for statistical purposes. 30. In the result, ITA No. 5328 & 5329/D/2010 are dismissed and ITA No. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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